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on Financial Development and Growth |
| By: | Nikolaos Antonakakis; Harald Badinger |
| Abstract: | This paper considers the linkages between output growth and output volatility for the sample of G7 countries over the period 1958M2-2011M7, thereby paying particular attention to spillovers within and between countries. Using the VAR-based spillover index approach by Diebold and Yilmaz (2012), we identify several empirical regularities: i) output growth and volatility are highly intertwined, with spillovers taking place into all four directions; ii) the importance of spillovers has increased after the mid 1980s and reached unprecedented levels during the recent financial and economic crisis; iii) the US has been the largest transmitter of output and volatility shocks to other countries. Generalized impulse response analyses point to moderate growth-growth spillovers and sizable volatility-volatility spillovers across countries, suggesting that volatility shocks quintuplicate in the long run. The cross-variable effects turn out negative: volatility shocks lead to lower economic growth, growth shocks tend to reduce output volatility. Our findings underline the increased vulnerability of the G7 countries to destabilizing shocks and their detrimental effects on economic growth, which are sizeably amplified through international spillover effects and the associated repercussions. |
| Keywords: | Output growth, Output growth volatility, Spillover, Vector autoregression, Variance decomposition, Impulse response OLI paradigm and R&D |
| JEL: | C32 E32 F41 F43 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2012:i:098&r=fdg |
| By: | Giacomo Ponzetto; Ugo Troiano |
| Abstract: | Countries with greater social capital have higher economic growth. We show that social capital is also highly positively correlated across countries with government expenditure on education. We develop an infinite-horizon model of public spending and endogenous stochastic growth that explains both facts through frictions in political agency when voters have imperfect information. In our model, the government provides services that yield immediate utility, and investment that raises future productivity. Voters are more likely to observe public services, so politicians have electoral incentives to underprovide public investment. Social capital increases voters' awareness of all government activity. As a consequence, both politicians' incentives and their selection improve. In the dynamic equilibrium, both the amount and the efficiency of public investment increase, permanently raising the growth rate. |
| Keywords: | Social Capital, Government Expenditures, Economic Growth, Public Investment, Elections, Imperfect Information |
| JEL: | D72 D83 H50 H54 O43 Z13 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1307&r=fdg |
| By: | Guillaumont, Patrick; Wagner, Laurent |
| Abstract: | This paper confronts three conundrums. First, does the relationship between aid and growth fade over time when aid is successful? Second, why are aid inflows neglected in the literature on growth acceleration (or episodes). Third, why is country vulnerabi |
| Keywords: | official development assistance, growth acceleration, economic vulnerability, probit estimations |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-31&r=fdg |
| By: | Ufuk Akcigit; William R. Kerr |
| Abstract: | We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multiproduct firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects. |
| Keywords: | CES,economic,research,micro,data,microdata,endogenous growth, innovation, exploration, exploitation, research and development, patents, citations, scientists, engineers |
| JEL: | O31 O33 O41 L16 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:12-08&r=fdg |
| By: | Angelo Antoci (Università degli Studi di Sassari); Marcello Galeotti (Università degli Studi di Firenze,); Paolo Russu (Università degli Studi di Sassari) |
| Abstract: | The purpose of the present paper is to highlight some features of global dynamics of the two-sector growth model with accumulation of human and physical capital analyzed by Brito and Venditti, which is a specification of the model proposed by Mulligan and Sala-i-Martin. In particular, our analysis focuses on the context in which Brito-Venditti system admits two balanced growth paths each of them corresponding, after a change of variables, to an equilibrium point of a 3-dimensional system, and proves the possible existence of points P such that in any neighborhood of P lying on the plane corresponding to a fixed value of the state variable there exist points Q whose positive trajectories tend to either equilibrium point. This implies that equilibrium selection in Brito Venditti system may depend on expectations of economic agents rather than on the history of the economy. That is, economies with identical technologies and preferences, starting from the same initial values of the state variables (history), may follow rather different equilibrium trajectories according to the economic agents' choices of the initial values of the jumping variables (expectations). Moreover we prove that the basins of attraction (two or three dimensional) of locally indeterminate equilibrium points may be very large, as they may extend up to the boundary of the system phase space. |
| Keywords: | global and local indeterminacy; two-sector model; endogenous growth; poverty trap; global analysis |
| JEL: | C62 E32 O41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2012_14.rdf&r=fdg |
| By: | Gracia, Eduard |
| Abstract: | A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if the hypothesis holds, then market valuations must follow a random walk. This postulate has frequently been criticized on the basis of empirical evidence. Yet the assertion itself incurs what we could call 'fallacy of probability diffusion symmetry': although market efficiency does indeed imply that the mean (i.e. expected) path must be a random walk, if the probability diffusion process is asymmetric then the observed path will most closely resemble not the mean but the median, which does not necessarily follow a random walk. To illustrate the implications, this paper develops an efficient markets model where the median path of Tobin's q ratio displays regular cycles of bubbles and crashes reflecting an agency problem between investors and producers. The model is tested against US market data, with results suggesting that such a regular cycle does indeed exist and is statistically significant. The aggregate production function in Gracia (Uncertainty and Capacity Constraints: Reconsidering the Aggregate Production Function, 2011) is then put forward to show how financial fluctuations can drive the business cycle by periodically impacting aggregate productivity and, as a consequence, GDP growth. -- |
| Keywords: | Rational Expectations,efficient markets,financial bubbles,stock markets,booms and crashes,Tobin's q,business cycles,economic rents |
| JEL: | E22 E23 E32 G12 G14 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201227&r=fdg |
| By: | Naomi Hausman |
| Abstract: | Universities, often situated at the center of innovative clusters, are believed to be important drivers of local economic growth. This paper identifies the extent to which U.S. universities stimulate nearby economic activity using the interaction of a national shock to the spread of innovation from universities - the Bayh-Dole Act of 1980 - with pre-determined variation both within a university in academic strengths and across universities in federal research funding. Using longitudinal establishment-level data from the Census, I find that longrun employment and payroll per worker around universities rise particularly rapidly after Bayh-Dole in industries more closely related to local university innovative strengths. The impact of university innovation increases with geographic proximity to the university. Counties surrounding universities that received more pre-Bayh-Dole federal funding - particularly from the Department of Defense and the National Institutes of Health - experienced faster employment growth after the law. Entering establishments - in particular multi-unit firm expansions - over the period from 1977 to 1997 were especially important in generating long-run employment growth, while incumbents experienced modest declines, consistent with creative destruction. Suggestive of their complementarities with universities, large establishments contributed more substantially to the total 20-year growth effect than did small establishments. |
| Keywords: | CES,economic,research,micro,data,microdata, clusters, innovation, local economic growth, universities |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:12-10&r=fdg |
| By: | de Manuel, Mirzha; Lannoo, Karel |
| Abstract: | Fresh prospects are opening for asset managers as Europe seeks to reduce its historical reliance on banking and to promote capital markets. But following the financial crisis, the industry faces a dual challenge: regaining investors’ trust and coping with the post-crisis regulatory reform. Much rides on its ability to make investment funds deliver better results to its investors. Distribution remains the major stumbling block, but action is also needed to promote the contribution of asset management to the real economy and to preserve financial stability. In response to these challenges, CEPS and ECMI formed a Task Force composed of market participants, international experts, regulators and academics who met regularly throughout 2011 to closely examine the workings of the asset management industry and its role in the EU economy. This report draws the link between asset management and several key issues: financial stability, product integrity, investor protection and the real economy. It evaluates the discussions on product integrity in UCITS and ‘shadow banking’, as well as the many legislative proposals that are currently under consideration – including implementation of the alternative investment fund managers Directive (AIFMD), the review of the markets in financial instruments Directive (MiFID II) and packaged retail investment products (PRIPS). In an effort to make these complex issues comprehensible to a broad group of readers, the report combines clear language and straightforward introductions with detailed analysis and technical illustrations. |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:6840&r=fdg |
| By: | Richard Harris; John Moffat |
| Abstract: | This paper decomposes aggregate TFP growth in Britain for 1997-2008 to show the contribution of different LEPs and the role played by manufacturing and services and UK- and foreign-owned plants within these LEPs. These contributions are further decomposed to show the role of productivity growth in continuing plants vis-à-vis reallocations in output shares. The results show that the largest LEPs, in population terms, with higher levels of job density, greater reliance on manufacturing and skilled worker occupations, higher proportions of workers with NVQ4+ qualifications, and lower turnover of businesses, achieved the highest TFP growth. This strong performance is mostly the result of reallocations of output shares towards high productivity continuing plants and the opening of high productivity plants. |
| Keywords: | Productivity decomposition, regional productivity growth |
| JEL: | C23 D24 R12 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sercdp:0112&r=fdg |